• Buyback said under consideration to help VMware shares recover
  • Possible changes said to placate skeptical EMC shareholders

VMware Inc. and parent company EMC Corp. are exploring steps to appease shareholders who are skeptical of Dell Inc.’s $67 billion pending acquisition, people with knowledge of the matter said.

VMware is considering a multibillion-dollar buyback and changes to a plan to consolidate financial results of money-losing Virtustream, said the people, who asked not to be identified because the information is private. The companies hope the moves will lead to a recovery in VMware shares, the people said.

VMware, EMC’s key asset, has fallen 18 percent since Oct. 12, when Dell and EMC agreed to the largest technology deal ever. The declining valuation has lowered the per-share sale price for EMC holders to $30.61 as of Friday’s close from $33.15. Dell is paying $24.05 in cash and offering a tracking stock equal to 0.11 VMware shares for every EMC share.

The drop has led some EMC shareholders to raise concerns with management over the current deal, said three of the people. EMC’s go-shop period expires next week and there are no other offers, two of the people said. Dell and EMC want to restore investor confidence in VMware, and aren’t planning to raise the cash portion or exchange ratio, the people said.

New Structure

The companies are discussing restructuring both the ownership and accounting for Virtustream, the people said, abandoning a plan that structured it as a 50-50 joint venture with VMware, consolidating the results. While VMware forecast in October that Virtustream would generate hundreds of millions in sales in 2016, investors were unhappy about near-term losses. A new composition would consolidate most or all of Virtustream’s results within EMC, the people said, which would be closely held if the Dell deal is completed.

A final decision hasn’t been made yet about the exact ownership structure of Virtustream, the people said. EMC completed its $1.2 billion acquisition for Virtustream in July. Reuters reported last month that EMC was reconsidering its plan for Virtustream.

Dave Farmer, a spokesman for EMC, declined to comment, as did Michael Thacker, a spokesman for VMware, and David Frink, a spokesman for Dell.

VMware shares have fallen since the company reported weak billings in its third-quarter earnings release, prompting 10 equity analysts to downgrade the stock. The worse-than-expected bookings can be partially attributed to the company’s uncertain future as Dell takes over majority ownership, Daniel Ives, an analyst at FBR & Co., wrote in October.

The company, based in Palo Alto, California, sells software for consolidating multiple workloads on a single server, and because growth in that business is slowing, is trying to grow through Virtustream’s cloud software.

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